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Sunday, 27 December 2015

Stories we should be thinking about

A few finance and related stories we need to be thinking about before Monday morning:

Macro matters:

First, some multi-year G8 composition forecasts - surely no surprise that India and Brazil are climbing the ranks...

'In its annual league table of world economies, the Centre
for Economic and Business Research (Cebr) forecast the UK to become "the
best performing economy" in Western Europe while the under performing
Russia, Italy and France risk expulsion from the G8' (link here).

(h/t @MehreenKhn)

Meanwhile talking about the UK, will the Bank of England impose the first rate rise for the thick end of a decade in 2016? This link here sets out the case for an increase. Personally I am not so sure given the recent lacklustre GDP statistics/downgrades. Either way - like the US - the trajectory of rate increases will be far more modest than in previous monetary tightening cycles.

I also mentioned Italy above. As observed at this link here there remains plenty of challenges for what is still one of Europe's largest economies going into 2016.

(h/t @fabiusmaximus01)

The latest views from OPEC came out a couple of days before Christmas. The prevailing view noted rising surpluses and crude price assumptions (link here)...

...but as noted at this very nice write-up here other assumptions - including rising North American production year-on-year in 2016 - may be too optimistic. My observation would be that sentiment remains very low towards the energy space and that we may all be surprised as it goes off the front pages / sees some modest price recovery (and associated stock picking opportunity) during the upcoming year.

'In a world of statistics, here’s a number that stands out: 71. That’s how many times the word “innovation” was mentioned in a communiqué issued after the Chinese Communist Party’s recent plenary meeting, which focused on China’s next five-year plan' (link here).

Interesting link here on "growth" and "value" - and how preferences/outperformance shifts over time. Next iteration value then? Which I guess would include energy, mining and maybe the emerging markets?!

July 1926 to 1944: Growth wins

1945 to 1962: Value wins

1963 to 1980: Value wins

1981 to 1998: Value wins

1999 to July 2015: Growth wins

Turning back to Europe now and a great guide to possibly why even Germany will be QE friendlier in 2016...

And talking about QE...that US$21 trillion figures goes up in 2016 due to the efforts of the ECB and BoJ (and no regression elsewhere) in my opinion. It is not clever or sophisticated but is an influence at the margin investors have to think about. More about this in my upcoming 2016 macro views preview.

(Saying that I notice the below from the online Financial Times - it seems not everyone believes in more ECB QE!

Many economists doubt the European Central Bank will increase the size of its €1.46tn asset-purchase programme in 2016 despite assurances by ECB chief Mario Draghi that additional monetary stimulus is still on the table.

The predictions of no further action in an annual Financial Times poll of eurozone analysts came despite Mr Draghi’s attempts to convince markets that the ECB remained primed to act should inflation and growth across the single currency area continue to disappoint)

Meanwhile a Brexit discussion in the Japan Times! Well, the article was written by an ex UK Ambassador to the country did not add too much to the debate...but I liked the graphic that accompanied the article:

Bitcoin is on track to post a solid price gain in 2015 (after a volatile 2014 admittedly). So what awaits next year? I enjoyed this article which includes the thought that:

"What you’re going to see in Europe and North America
is the development of bitcoin inside, and that is people who are building next
generation financial services will be incorporating bitcoin at least in their
strategic thinking in terms of payment rails and how they store value."

The blue area is home to the same number of people as the
red area!

(h/t @conradhackett)

'2015 in 12 charts'. Super link here. There will be at least one you like.

Will this be mentioned on the sales particulars in due course?

(h/t helgrimshaw)

Company-related observations:

Important observation for all UK market investors (cited by @ASI)

Research by the Capital Group, which manages more than £750
billion of assets, has shown that more of the FTSE 100’s revenues are earned
internationally than had previously been believed.

Previous consensus estimates had held that two-thirds of
FTSE 100 companies’ turnover was derived from overseas sales.

But the new study has raised this to 77%. According to the
Capital Group, 30% of the FTSE 100’s revenues now come from emerging markets,
19% from the US, 17% from Europe excluding the UK, 5% from Japan, 4% from the
rest of developed Asia, and 2% from Canada.

Stock picking capability appears to be on the wane...but that is just why you should go active and not passive currently (as I correctly predicted a year ago - as observed in my recent (link here) Financial Orbit Speaks:Did I have more 'hits' than 'misses' in my 15 macroeconomic calls for 2015 made a year ago?'

(h/t @panthera_s)

Useful thoughts on Alphabet/Google and specifically why YouTube could be worth twice as much as Netflix (link here):

It’s not clear that investors realize that YouTube brings in perhaps 15% of Alphabet’s revenue, and that it could approach 25% by the end of the decade. Alphabet has probably been running the business near breakeven to invest in infrastructure, workers, research, and new products. Over time, it can pull back on investment as revenue swells, unlocking profit margins that are on par with the company’s plump average. That’s one of reason Alphabet, already one of the top five U.S. companies by profit, has the potential to grow so quickly, perhaps doubling earnings by the end of the decade.

And finally...

Great Trading Places piece - a superb 'Christmas' film about so much
more than the futures pit and cornering the OJ market. Link here.